Most Companies Start with the Wrong Metric
When I talk to founders or growth leaders about customer acquisition, the first number that usually comes up is CAC, or cost per acquisition.
It’s not a bad metric. It’s just incomplete.
Starting with CAC is like looking at the price tag without understanding the long-term value of what you're buying. The better question is not “How much did we spend to acquire this customer?” The more strategic question is:
“What is this customer worth over time, and are we spending in proportion to that value?”
Until you have a clear understanding of customer lifetime value (CLV), more often referred to as LTV, any discussion around CAC, marketing channels, or ROI is based more on assumptions than insight.
Who This Applies To
This perspective is most relevant for businesses that already have traction and a defined customer base. If you are just launching or still testing your offer and channels, your first priority is to validate your model and gather real customer behavior data.
That said, the earlier you begin thinking about LTV, even in rough form, the more informed your decisions will be as you scale.
LTV Is a Strategic Tool, Not Just a Finance Metric
LTV represents the revenue a customer will generate over the duration of their relationship with your business. This might span months or years depending on your model.
To use LTV properly in strategic decision-making, it should be calculated using gross profit, not just revenue. Gross profit is what you have available to fund acquisition, operations, and growth. If your LTV is based on top-line revenue, it will give you a distorted view of what you can actually afford to spend.
- Gross Revenue = the total amount billed to the customer
- Gross Profit = revenue minus the direct costs required to service that customer
Your real LTV is the gross profit over the customer’s lifecycle. That’s the money that gives you leverage.
Here’s a simple example to make this concrete.
Take Starbucks. The average customer spends around five to six dollars per visit. That does not sound impressive until you factor in visit frequency and long-term behavior. A regular customer might visit twenty times per month, every month, for years. With consistent behavior and moderate upsells, their LTV can climb to over $10,000.
That number is not theoretical. Starbucks has modeled this for years and uses it to justify investments in loyalty programs, mobile ordering, personalized marketing, and premium locations. They are not optimizing for the first sale. They are optimizing for long-term value.
Most businesses are sitting on segments that have this same compounding potential. They just haven’t taken the time to uncover it.
CAC Alone Doesn’t Tell You Anything Without LTV
Let’s say you acquire a customer for $400.
Is that good?
It depends entirely on what that customer is worth.
- If their LTV is $600, the margin is slim and the model probably needs tightening
- If their LTV is $3,000, you have plenty of room to scale
- If their LTV is projected at $3,000 but they churn after one month, you don’t have a CAC problem, you have a retention issue
The relationship between LTV and CAC matters far more than either metric on its own. A healthy benchmark is an LTV-to-CAC ratio of 3 to 1. If you are closer to 1 to 1, you are likely burning cash. If you are above 5 to 1, you might be underinvesting in growth.
Segment LTV to Unlock Strategic Clarity
A single average LTV across all customers hides the truth. The reality is that not all customers are equal.
- Some segments retain longer, refer more, or expand into higher-value services
- Others churn quickly or take up more operational bandwidth without adding long-term value
When you calculate LTV by segment, you start to see where your most profitable growth opportunities are. You can then tailor your messaging, offers, and acquisition spend accordingly.
You do not need to lower CAC across the board. You need to match your spend to the value of the customer you are targeting.
Do Not Optimize Channels by Cost. Optimize by LTV.
A common mistake is to prioritize channels based on surface-level metrics like cost per click or CPMs. That kind of thinking can drive short-term efficiency but long-term waste.
The better question is this:
Which channels reliably bring in high-LTV customers?
- A twelve-dollar click from a targeted industry publication that converts into a fifty-thousand-dollar client is far more valuable than a one-dollar click from a general audience that never closes
- A warm referral with a longer sales cycle can still deliver better ROI than a cheap lead from a noisy paid platform
- A content asset that brings in fewer, higher-intent prospects might outperform a high-volume ad with low purchase intent
When you look through the lens of customer value, your entire channel strategy starts to shift.
LTV in the Real World: How Smart Companies Use It to Guide Strategic Spend
These examples show how different business models apply the same principle: spend in proportion to long-term value.
Starbucks (Consumer, Retail)
- Average purchase: $5 to $6
- Visits per month: 16 to 20 for loyal customers
- Customer lifespan: Often 10 to 20 years
- Estimated LTV: $10,000+ per high-frequency customer
Starbucks invests in loyalty programs, mobile ordering, and real estate based on this long-term view.
HubSpot (SaaS)
- Average monthly spend: $300 to $800 for SMBs
- Retention: 24 to 36 months
- Expansion: High, due to upsells and user growth
- Estimated LTV: $8,000 to $25,000
HubSpot justifies a CAC in the $2,000 to $5,000 range because they segment LTV and build around it.
Where to Start
If you do not have a clear grasp on LTV, you are making acquisition decisions without a foundation. Here is a simple path forward:
- Calculate your true LTV. Use gross profit, not just revenue. Include retention, expansion, and referrals.
- Segment it. Break it down by customer type, acquisition source, or behavior.
- Compare it to CAC. Look at the LTV-to-CAC ratio by segment and channel.
- Align your channel strategy. Focus your time and budget on the sources that bring in your most valuable customers.
Final Thought
When LTV is your foundation, CAC becomes a tool instead of a trap.
Marketing becomes less reactive and more strategic. You stop chasing cheap leads and start building a model that compounds value over time.
The businesses that win are not the ones spending the least. They are the ones spending wisely, based on what their best customers are actually worth.
